By: Richard C. Harris

Adler Murphy & McQuillen LLP 

A divided Illinois appellate court recently held that the circuit court lacked jurisdiction to entertain a motion for sanctions filed several months after the entry of a Rule 304(a) finding. The Rule 304(a) finding accompanied the dismissal of a “discrete portion of the overall controversy between the parties.” The majority reasoned that, because the allegedly sanctionable conduct related exclusively to the “discrete portion” of the lawsuit that had been dismissed, the motion for sanctions needed to be filed within 30 days of the Rule 304(a) finding.   

In Lakeshore Centre Holdings, LLC v. LHC Loan, LLC, 2019 IL App (1st) 180576, the plaintiff sold its ownership interest in a health club to the defendant subject to a repurchase option. The plaintiff later filed a complaint including several claims related to the defendant’s alleged failure to honor the repurchase option. Thereafter, the defendant filed a counterclaim against the plaintiff based on its alleged failure to enter good faith negotiations for the purchase of a different health club. Notably, the defendant’s counterclaim had no relation to the claims advanced by the plaintiff.   

On November 30, 2016, the circuit court dismissed the plaintiff’s complaint in its entirety and made a finding under Rule 304(a) that there was no just reason to delay the plaintiff’s appeal. On May 25, 2017, while the plaintiff’s appeal was pending, the defendant filed a motion for sanctions in the circuit court under Rule 137. The sanctions motion related solely to the plaintiff’s claims based on the repurchase option; none of the allegations related to the transaction at the center of the defendant’s counterclaim. After the circuit court granted the sanctions motion in part and denied it in part, both parties filed notices of appeal. However, after the parties briefed the appeal and cross-appeal of the sanctions judgment, the First District Appellate Court ordered supplemental briefing on the issue of whether the circuit court had jurisdiction to grant any of the relief requested in the defendant’s sanctions motion.

Writing for the majority, Justice Pierce noted that Rule 137(b) requires the filing of a sanctions motion within 30 days of “the entry of final judgment.” The final judgment was entered on November 30, 2016, when the circuit court dismissed the plaintiff’s claims in their entirety and entered the Rule 304(a) finding. At that point the clock began to run on all postjudgment activity related to the dismissal of the plaintiff’s claims, including any motions for sanctions. Because the allegedly sanctionable conduct related solely to the repurchase option that was the basis for the plaintiff’s claims, the defendant’s Rule 137 motion needed to be filed within 30 days. However, when no postjudgment motions were filed and the plaintiff filed a timely notice of appeal, the circuit court lost jurisdiction to entertain any such motion. Justice Griffin concurred in the judgment and opinion.

In her dissent, Justice Mikva noted that proceedings under rule 137(b) “shall be brought within the civil action in which the pleading, motion or other document referred to has been filed.” Because the civil action was still pending on the defendant’s counterclaim, Justice Mikva believed that the sanctions motion was timely and the circuit court had jurisdiction to consider it.